Should I Lease, Buy or Subscribe To A New Car?

by Rick Kranz, Contributing Editor | April 4, 2018 1:45 PM

You’re looking for a new car, but can’t decide whether to buy, lease or sign up for something called “subscription.” One neighbor says buying a car is the only way to go, he’s had four new minivans in the past 30 years. A college buddy, a salesman who spends half his time on the road, gives a thumbs-up to leasing. Every three years he sits behind the wheel of a new sedan. Then there’s this new animal, called a subscription. Which is right for you?

Here’s a few tips on the pros and cons of each strategy:

Subscription

Although vehicle subscriptions have been around for a few years, most consumers have no idea what it is. In short, it’s a way to get a vehicle with a lot of the costs from maintenance to insurance bundled into the monthly payment. It may be for one vehicle for a fixed period or a month-to-month arrangement with access to several different vehicles depending on your immediate need. It is also the most expensive way to acquire a set of wheels.

These subscriptions are meant for people with deep pockets either don’t want to bother with the day-to-day expense and upkeep of a vehicle or for those who want to experience different vehicles at different moments of their life. For example, a soccer mom may want a vehicle that can transport multiple kids to and from games. She may want something sportier when going on a date night with her husband, or lunch with her friends. It’s that sort of flexibility that comes at a price.

Several automakers have launched or are planning to launch these flexible subscription services, among them BMW, Cadillac, Hyundai, Lincoln, Mercedes-Benz and Porsche which generally offer a wide range of vehicle choices and does not lock in the consumer for two or three years.

Cadillac calls its subscription service Book by Cadillac. The service costs $1,800 a month plus a $500 initiation fee. The service is available in the New York, Los Angeles and Dallas metropolitan areas and lets the subscriber drive six different Cadillac models. The subscription includes insurance, license plates and maintenance; the vehicle is dropped off and picked up at the subscriber’s home or office, providing a “white glove” concierge experience. Mileage is capped at 24,000 miles per year and the subscriber can flip vehicles 18 times a year.

“Book by Cadillac is month-to-month so you can join for a month, drop out for several months, then come back again,” said Melody Lee, global director of Book by Cadillac.

“The idea behind it is this lower level of commitment allows you to mold the program to your lifestyle. So rather than having a car that needs to perform like a Swiss army knife in meeting all the needs of your life, you have instead six cars through Book by Cadillac at your disposal. So, when you need an Escalade, you can get the Escalade, when you are ready for a plug-in CT6, you can also get that car.” The program also includes the Cadillac ATS-V, CTS-V, CT6 and XT5. A subscriber simply uses an app on a smartphone to schedule vehicles.

Generally, the programs for the other automakers operate in a similar manner providing a wide range of vehicle offerings without the long-term commitment of leasing. One exception is Care by Volvo, which has been introduced on the 2018 Volvo XC40 and will be available later this year on the 2019 Volvo V60 wagon. Care by Volvo requires a two-year commitment, but after the first year, you can swap out of your current car into another Volvo in the program, which will reset the agreement for another two years. The subscription is about $600 for an XC40 Momentum and about $700 on the XC40 R-Line and it includes all maintenance and insurance costs.

Dealers with multiple franchises are also looking at offering subscriptions across brands through Flexdrive and Clutch, subsidiaries of Cox Automotive. The former uses certified off-lease used vehicles at a lower price point, while the latter is for new vehicles

The Park Place dealer group in Dallas will launch a subscription service in May that will provide access to eight luxury brands. Subscribers are limited to 20,000 miles per year, more than a typical lease. Like Cadillac’s program, the subscription can be turned on or off at any time and the car is dropped off and picked up at a home or office. However, unlike Cadillac’s program which limits vehicle swaps to 18 per year, Park Place Select offers an unlimited number of flips. A subscriber could literally swap a vehicle each day, said Dave Evans, director of marketing for Park Place Dealerships.

Evans said consumers are attracted to the Park Place Select program because of access to a variety of brands. “We feel we have something that is very different and unique because we have multiple brands. It really creates a totally different level of experience. However, when you are working with the individual manufacture’s subscription program,” Cadillac, Mercedes-Benz and Porsche, for example, the subscriber is limited to that manufacturer’s model line.

“What we are seeing in terms of discussions is that people are excited about the idea. They are saying, ‘you mean, I can drive a Mercedes one day, a Porsche the next, and a Lexus the next day?’ That is exciting to them because they get a chance to experience different brands,” Evans said.

The Park Place Select subscription program is divided into three pricing tiers. For example, for $895 per month, a subscriber can drive such models as a Jaguar E-Pace, Mercedes-Benz C Class and Ranger Rover Evoque. The second tier is $1,395 a month and lets subscribers drive a Lexus GS350, Porsche Macan, Volvo XC90 and other models.

The most expensive tier, Tier 3, costs $1,795 per month and gives subscribers access to such models as a Maserati Ghibili, Mercedes-Benz S450 and Porsche Boxster convertible. There is a $750 initiation fee for the subscription program.

Leasing

Several decades ago leasing was unheard of unless an employer had a big vehicle fleet. Today, all sizes of businesses embrace leasing because they can give an executive or business owner a handsome perk and write the expense off the company’s taxes. Leasing has grown outside of business, too. A family fleet may include one or two leased vehicles. In fact, leasing has been growing in popularity nearly every year over the past decade, accounting last year for about one-third of all new vehicle transactions.

But is leasing the right choice for everyone?

The one obvious benefit is that every two or three years there’s a new vehicle in the driveway. If experiencing the latest vehicle technology on a frequent basis is important, a two- or three-year lease might be attractive. Second, leasing generally offers the opportunity to drive a more expensive vehicle because the monthly payment is lower than a monthly loan payment to purchase that vehicle. With a lease the customer is paying to use that vehicle for 24 or 36 months rather than paying for the entire cost of the car over a 48- to 60-month loan.

Third, before interest rates started to creep up last year, some leases were available without a down payment. It still pays to shop around for a lease without a down payment. Finally, when you lease there is no trade-in hassle, and it is easy to transition to another vehicle when the term expires. When your contract ends, the keys are handed over to the dealer, an inspection is conducted and you walk out the door. And it also opens the door for enticements if you decide to stay with the make—some brands offer special deals to pull ahead the end of your lease and keep you in the brand’s vehicle lineup.

However, leases do come with some risks, especially when it comes to the condition of the vehicle when it’s turned in. If any damage is discovered on the outside or inside the vehicle that exceeds normal wear, the lessee is responsible. Additionally, mileage is usually capped around 12,000 a year although some leases with lower payments can have limits set at 7,500 to 10,000 per year. More expensive leases could be capped at 15,000. Exceeding the mileage limits usually requires an extra payment calculated at around 25 cents per mile. Also, if you try to get out of the contract early, there may be early termination fees. Pro tip: always read the fine print. Remember, while a lease may have a lower payment than a purchased car, if you always lease you will pay more in the long run than if you purchased the car, paid it off and kept it for years.

Buying

Car and truck quality has increased considerably in the past decade. It’s not just talk, it is reality. “Cars last over 100,000 miles,” said one Illinois dealer who asked not to be identified. “You buy the car, pay for it over five years and then there’s another five years of life out of that car before you need to get rid of it.”

The least expensive way to acquire a car can is to pay cash. Ultimately you end up owning the car after the loan (if needed) is repaid. The car can be driven as much as you wish because there is no cap on mileage or penalty per mile for exceeding the mileage limit mentioned in a lease or subscription contract. Since the vehicle is yours, you can sell or trade it at anytime (providing you pay off the loan balance if any) and you have an asset, though a depreciating one, in the resale value of your vehicle.

But also, keep in mind that if you borrow money for the purchase, interest rates will affect your monthly payment. Right now, they are at low levels, but can go much higher depending on your credit rating. Also, a longer-term loan may result in a lower monthly payment, but it will also cost you more in total since the interest will accrue over the life of the contract. And since you are paying for the entire purchase price, typically your monthly payment will be higher than a lease, but likely lower than a subscription. And with ownership comes responsibility for things like routine maintenance and larger repairs once the factory warranty expires.